Bankruptcy Case News from NACBA and the National Consumer Bankruptcy Rights Center August 2013

The National Consumer Bankruptcy Rights Center has been active in cases around the country – Read about these cases by clicking on the links below:

Kansas EITC Exemption Constitutional
Despite relentless attacks by the bankruptcy trustees Kansas’s bankruptcy-only exemption scheme, under which a debtor in bankruptcy is permitted to exempt his Earned Income Tax Credit, has once again been deemed constitutional. Nazar v. Lea (In re Lea), No. 12-1297 (D. Kans. Aug. 16, 2013), consolidated with Parks v. Hudson (In re Hudson), No. 12-1298. The exemption benefits low income families with dependent children by treating the excess of EITC credit over taxes owed as an overpayment of taxes and refunding the difference. Like all the courts addressing the Kansas statute so far, the district court rejected the trustees' argument that the exemption statute violates the Uniformity and the Supremacy Clauses of the Constitution.

There is no violation of the Uniformity Clause for the simple reason that that Clause restricts the power of Congress and is not applicable to state action. See In re Kulp, 949 F.2d 1106, 1109 n. 9 (10th Cir. 1991). See also Richardson v. Schafer (In re Schafer), 689 F.3d 601 (6th Cir. 2012), cert. denied, No. 12-643 (Feb. 19, 2013). Relying on section 522 of the Bankruptcy Code which expressly permits states to use their own exemptions rather than the federal exemption scheme, the court quickly dispensed with the notion that the exemption statute offends the Supremacy Clause by express or field preemption. Against the backdrop of a presumption of constitutionality, the court went on to reject the trustees’ argument that the exemption statute actually conflicts with several provisions of the federal Bankruptcy Code.

NACBA filed amicus briefs in these cases and other cases attacking the Kansas exemption statute. Notwithstanding consistent losses on these issues, the Kansas trustees have taken two cases raising the identical arguments to the Tenth Circuit BAP. In re Beach, No. 13-37, and In re Murray, No. 13-34.

Amicus Briefs Filed:

Estate Property Upon Conversion to Chapter 7
The NACBA membership has filed an amicus brief in the case of Viegelahn v. Harris (In re Harris), No. 13-50374 (5th Cir. August 20, 2013) seeking affirmance of the lower courts’ opinions. There, the debtor filed a chapter 13 petition, but after a good faith attempt to fulfill his obligations under the plan, he converted to chapter 7. The trustee sought to distribute debtor’s wages collected pursuant to the plan but not yet distributed at the time of conversion.

In its brief, NACBA argues that the trustee seeks to turn back the clock on an issue resolved by Congress in 1994 when it added section 348(f) to the Bankruptcy Code. That section provides that when a case is converted from chapter 13 to chapter 7, the “property of the estate” in the new chapter 7 case consists of the debtor’s property as of the date of the original petition. Only in the case of bad faith conversions is the property of the estate determined as of the date of conversion. In enacting section 348(f), Congress resolved a split in the circuits on this issue and since that time circuit courts have uniformly found that undistributed post-petition property belongs to the debtor upon conversion. See, e.g., In re Michael, 699 F.3d 305 (3d Cir. 2012) In re Stamm, 222 F.3d 216, 217-18 (5th Cir. 2000) In re Young, 66 F.3d 376, 378 (1st Cir. 1995).

The brief argues that the trustee’s “third option” of treating property as neither belonging to the estate, nor belonging to the debtor, but as having “vested” in the creditors upon confirmation of the chapter 13 plan is unsupported by statutory interpretation. Section 348(f) resolves the issue in favor of incentivizing debtors to attempt to repay creditors without the fear of negative repercussions if those good faith efforts fail.

Section 109(e) Debt Limits
NACBA filed an amicus brief in the Third Circuit case of In re Scotto-DiClemente, No. 12-3336. That case involves the question of how underwater mortgages are counted toward the section 109(e) debt limits when the chapter 13 debtor’s personal liability on the mortgages was discharged in a previous chapter 7 bankruptcy.Six months after obtaining his chapter 7 discharge the debtor filed a chapter 13 petition seeking to cure the arrearage on his first mortgage, strip the underwater mortgages, and save his residence from foreclosure. The court granted the trustee’s motion to dismiss, finding that the debtor’s unsecured debts based on the underwater mortgages exceeded section 109(e)’s debt limits. In re Scotto‐DiClemente, 463 B.R. 308, 314 (Bank. N.J. 2012) (decision on debtor’s motion for reconsideration). The district court affirmed.

NACBA’s brief makes the argument that the courts below improperly conflated a “debt” and “claim.” Under the text of the Code and the reasoning in Johnson v. Home State Bank, 501 U.S. 78 (1991), the chapter 7 discharge left the bank with an in rem “claim” against the property securing the liens, while eliminating the debtor’s in personam liability. Therefore, while the “claim” remained, no unsecured “debt” of the debtor existed to be used in the section 109(e) unsecured debt calculation. Additionally, stripping off wholly unsecured liens in chapter 13 does not convert those liens to unsecured debt where the debtor’s personal liability has already been discharged in a previous chapter 7. 
Thanks to Peter Goldberger for authoring NACBA’s brief.

Petition for Rehearing on State Law Exemption of Personal Injury Claim:The debtor filed a petition for rehearing en banc in the case of In re Abdul-Rahim. In that case, the Eighth Circuit held that the Missouri opt-out statute does not permit exemptions that are based upon state common law. In re Abdul-Rahim, No. 12-3448 (8th Cir. July 12, 2013). There, the debtors sought to exempt their unliquidated personal injury claim from their bankruptcy estate. NACBA filed an amicus brief in that case distinguishing the case relied on by the Eighth Circuit and arguing that state law defines property rights in bankruptcy and Missouri courts have consistently held that unliquidated personal injury claims are exempt property for purposes of bankruptcy. In its decision, the Eighth Circuit panel stated that “unless In re Benn is overruled en banc or by the Supreme Court, it remains binding precedent, and is directly applicable to the issues in this case.”

Arguments Scheduled:
In re Reeves, No. 12-2127 (4th Cir.)
Issue: Whether trustee has an obligation to liquidate asset that is security for tax lien to pay administrative fees and interest owed to tax creditor where creditor has not sought relief from stay. Date of argument: September 19, 2013. NACBA filed an amicus brief in this case.

In re Hensen, No. 11-16019 (9th Cir.)
Issue: Whether possession is required for debtor’s obligation to turnover value of non-exempt funds. Date of argument: October 8, 2013. NACBA filed an amicus brief in this case.

Please consider making a contribution to the National Consumer Bankruptcy Rights Center to advance this important work.

Bankruptcy Case Law Updates from the National Consumer Bankruptcy Rights Center

• Eleventh Circuit Gearing Up to Revisit Chapter 7 Lien Strip

  Posted by NCBRC - August 5th, 2013
  Will the Eleventh Circuit continue to buck the trend by allowing lien strips in chapter 7? That is the question that will likely be answered in the case of In re Sinkfield, No. 13-12141. On July 30, the circuit court summarily affirmed the lower courts’ finding that, pursuant to In re McNeal, No. 11-11352 (11th Cir. May 11, 2013), chapter 7 debtors may strip wholly unsecured liens under section 506(d). You will recall that the Court in Dewsnup v. Timm, 502 U.S. 410 (1992), found that under the historical principle that a lien survives bankruptcy unaffected, and a reading of sections 506(a) and (d) under which “allowed secured claim” is given different meanings, debtors may not strip-down a partially secured lien in chapter 7. In addressing a case in which the debtor sought to strip a wholly unsecured lien, however, the court in McNeal found that Dewsnup was inapplicable and that its earlier precedent, Folendore v. United States Small Bus. Admin., 862 F.2d 1537 (11th Cir. 1989), permitting such strip-offs under section 506(d), was still good law. On August 2, the McNeal court agreed to publish its previously unpublished opinion to that effect. In granting summary affirmance of the lower court in Sinkfield, the circuit court specifically stated that its purpose was to allow the parties to seek en banc review.

  On the same topic, the Seventh Circuit recently found that, under Dewsnup, neither section 506(a) standing alone, nor in conjunction with section 506(d), permits lien stripping of a wholly unsecured lien in chapter 7. Palomar v. First American Bank (In re Palomar), No. 12-3492 (7th Cir. July 11, 2013). See also Ryan v. Homecomings Fin. Network , 253 F.3d 778 (4th Cir. 2001); Talbert v. City Mortg. Serv., 344 F.3d 555 (6th Cir. 2003); Wachovia Mortg. v. Smoot, 478 B.R. 555 (E.D.N.Y. 2012) (section 506 may not be used to strip off wholly unsecured lien in chapter 7).
  
  

• Dismissal under Section 109(g)(2)

  Posted by NCBRC - July 31, 2013

  Rivera v. Matos (In re Rivera), No. 12-87 (B.A.P. 1st Cir. June 26, 2013), involved application of section 109(g)(2) which provides that no individual may be a debtor under this title “who has been a debtor in a case pending under this title at any time in the preceding 180 days if—(2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title.” The facts were not good for the debtor. He filed his first chapter 13 bankruptcy on the eve of foreclosure but when he failed to respond to the mortgagee’s motion for relief from stay, the court lifted the stay thereby permitting the creditor to pursue his state foreclosure rights. One week before the scheduled foreclosure, Debtor moved to dismiss his bankruptcy for the express purpose of re-filing in order to prevent the foreclosure. The day before the scheduled foreclosure, the court granted the motion to dismiss. The debtor filed a new chapter 13 bankruptcy petition hours later. The creditor moved to dismiss the petition on the basis of section 109(g)(2)’s proscription against serial filings and on the basis of alleged bad faith. The court granted the motion solely pursuant to section 109(g)(2).

  The BAP agreed that the case was properly dismissed under section 109(g)(2) and that it was unnecessary to make a determination as to bad faith. In so holding, the court discussed the subtleties of section 109(g)(2) noting that courts are divided on its application. In In re Durham, 461 B.R. 139, 142 (Bankr. D. Mass. 2011), the court delineated three approaches to section 109: the mandatory approach, under which the court must dismiss a case that meets the criteria set forth in section 109(g)(2),see, e.g., In re Andersson, 209 B.R. 76, 78 (6th Cir. BAP 1997); the discretionary approach, under which the court may take into consideration the debtor’s motives and whether the creditor has demonstrated bad behavior, see, e.g., Leafty v. Aussie Sonoran Capital, 479 B.R. 545 (B.A.P. 9th Cir. 2012) (section 109(g)(2) dismissal discretionary);

  In re Richter, 2010 WL 4272915, at *3 (Bankr. N.D. Iowa 2010); and the causal approach, under which the case will be dismissed only where there is a connection between the filing of the motion for relief from stay and the debtor’s voluntary dismissal. See In re Payton, 481 B.R. 460 (Bankr. N.D. Ill. 2012) (finding that the most reasonable interpretation of “following” in section 109(g)(2) is “as a result of”). InPayton, the court reasoned that the causal approach harmonizes with congressional intent to prevent debtors from filing serial bankruptcies and dismissing in order to avoid the consequences of court-ordered relief from stay. See In re Riekena, 456 B.R. 365, 368 (Bankr.C.D.Ill.2011) (“It is widely acknowledged that Congress enacted section 109(g)(2) for the purpose of curbing abusive repetitive filings by debtors attempting to nullify a stay relief order entered in a prior case by obtaining a new automatic stay upon refiling.”); In re Beal, 347 B.R. 87 (E.D. Wisc. 2006) (finding that dismissal pursuant to section 109(g)(2) is inappropriate where the motion for relief from stay was denied).

  While some courts in the First Circuit have adopted the causal approach, see, e.g. Durham, 461 B.R. 139; In re Lopez Ramos, 212 B.R. 29, 30 (Bankr. D.P.R. 1997), theRivera court found that it did not have to make a choice as the case would be subject to dismissal based on any of the three approaches. Because the debtor explicitly informed the court that he sought dismissal of the earlier case as a result of the court’s granting of the motion for relief from stay and the pending foreclosure he admitted the causal connection. Moreover, there was no suggestion of bad faith on the part of the creditor and further delay of the foreclosure resulting from the second bankruptcy petition would prejudice the creditor.

  The court was also not faced with the question of whether the automatic stay is in effect until such time as it is determined whether the debtor is ineligible, or whether section 362(b)(21)(A), which provides that the automatic stay does not come into play when the debtor is ineligible under section 109(g), is self-executing. See Anjos v. Bank of America, No. 12-11553 (Bankr. D. Mass. Nov. 5, 2012) (interpreting section 109(g)(1) and finding that the automatic stay is in effect until such time as debtor’s ineligibility is determined). See also Durham, 461 B.R. at 141 (“Thus until the court rules on eligibility, the filing of a petition by an individual possibly ineligible under § 109(g) effectively commences a bankruptcy case.”).

• No Lien Strip Permitted in Chapter 7 under Section 506

  Posted by NCBRC - July 29, 2013

  In In re Palomar the chapter 7 debtors filed an adversary proceeding seeking to strip off a wholly unsecured junior lien on their residence. The bank had not filed a claim in the bankruptcy. The court found that the debtors could not strip the lien and the district court affirmed. The Seventh Circuit found that neither section 506(a) standing alone, nor in conjunction with section 506(d), permits such lien stripping. Palomar v. First American Bank (In re Palomar), No. 12-3492 (7th Cir. July 11, 2013).

  The Seventh Circuit began with the finding that, under the reasoning set forth inDewsnup v. Timm, 502 U.S. 410 (1992), 506(d) does not permit strip-off of a lien that is allowed even though that lien may be valueless under section 506(a). Because, inPalomar, the bank had not filed a claim, there was no issue as to whether the claim was “allowed” for purposes of application of section 506(d), therefore, the lien could not be stripped pursuant to that section. See also Ryan v. Homecomings Financial Network, 253 F.3d 778, 781-82 (4th Cir. 2001) (chapter 7 debtor may not strip-off wholly unsecured lien pursuant to section 506(d)); Talbert v. City Mortg. Serv., 344 F.3d 555 (6th Cir. 2003) (same); Laskin v. First Nat’l Bank of Keystone, 222 B.R. 872 (B.A.P. 9th Cir. 1998) (same). But see In re McNeal, 477 Fed. Appx. 562 (11th Cir. 2012) (under Eleventh Circuit precedent chapter 7 debtor may strip wholly unsecured lien pursuant to section 506(d)).

  The court turned to whether section 506(a) would serve the purpose sought by the debtors and  found that it would did not. “The point of section 506(a) is not to wipe out liens but to recognize that if a creditor is owed more than the current value of his lien, he can by filing a claim in bankruptcy (rather than bypassing bankruptcy and foreclosing his lien) obtain, if he’s lucky, some of the debt owed him that he could not obtain by foreclosure because his lien is worth less than the debt.” Citing In re Tarnow, 749 F.3d 464, 465-66 (7th Cir. 1984).

  Though, as was found by the Palomar court, the trend is toward interpreting Dewsnupas prohibiting strip-offs of wholly unsecured liens in chapter 7, the Eleventh Circuit rejected that finding in its unpublished opinion in In re McNeal, 477 Fed. Appx. 562 (11th Cir. 2012). There, the court found that Dewsnup should be confined to its factual borders which dealt only with a partially secured lien. When the issue involves a wholly unsecured lien, albeit one that is allowed under section 502, Dewsnup does not control. Rather, the court in McNeal relied on Folendore v. United States Small Bus. Admin., 862 F.2d 1537 (11th Cir. 1989), which held that the plain meaning of sections 506(a) and (d) rendered a wholly unsecured lien in chapter 7 void.

• Trustee Steps into Shoes of Lienholder upon Avoidance of Lien

  Posted by NCBRC - July 26th, 2013
  NCBRC filed an amicus brief on behalf of the NACBA membership in the case of In re Traverse, 13-9002 (1st Cir. July 10, 2013). In that case, when the chapter 7 debtor entered into bankruptcy, she sought to exempt her home from the estate and continue making her mortgage payments. It was undisputed that the debtor was not in default on her mortgages. The trustee, however, successfully avoided one of the liens as unperfected and sought to sell the debtor’s residence for the benefit of creditors. The lower courts found that, having avoided the lien, the trustee stood in the shoes of the debtor and had the power to sell the property.

  In its amicus brief before the First Circuit, NACBA argues that application of Bankruptcy Code sections 704, 541(a), 551, and 544, demonstrates that upon avoidance and preservation of a lien the trustee stands in the shoes of the former lienholder, not the debtor. Therefore, the trustee did not gain the power to sell the property except to the extent that the lienholder would have had that power. See In re Trout, 609 F.3d 1106, 1110 (10th Cir. 2010) (“under § 551 the trustee steps into the shoes of the former lienholder, with the same rights in the collateralized property that the original lienholder enjoyed.”).  Because the debtor was current on her payments, under state law, there was no default to trigger the right to foreclose.

  Thanks to Ray DiGuiseppe for authoring NACBA’s brief.

  
  

  NACBA Files Amicus on Applicable Commitment Period

  Posted by NCBRC - July 24, 2013

  NCBRC filed an amicus brief on behalf of the NACBA membership in the case of In re Pliler, No. 13-1445 (4th Cir. June 20, 2013). NACBA’s brief argues that the Bankruptcy Court erred when it held that section 1325(b)(4)(B) created a minimum plan length of sixty months for above-median debtors, and that the disposable income formula set forth by Congress and reflected on Form 22C could be abandoned if it was inconsistent with income and expenses as reflected on Schedules I and J.

  With respect to the applicable commitment period, the lower court in Pliler erroneously adopted the “temporal approach” which treats that period as a mandatory temporal obligation that the debtor must serve in the plan. In its brief NACBA argues that the correct interpretation of the applicable commitment period supports a “monetary approach,” under which “projected disposable income” is calculated by multiplying the number of months in the debtor’s “applicable commitment period” by the debtor’s “disposable income” to produce the minimum dollar amount that must be paid to unsecured creditors. Once that amount is paid, the debtor has fulfilled his or her obligations and may be discharged without regard to whether the debtor completed the plan prior to the 5 year period. This approach has advantages for all concerned. Creditors get their money sooner, thereby lessening the risk of the debtor’s failure to complete the plan, the bankruptcy moves more quickly through the system thereby relieving judicial costs, and the debtor can benefit sooner from the fresh start he or she has earned.

  Furthermore, from a statutory construction standpoint, if section 1325(b)(4) establishes a freestanding plan length even in the absence of objection from the trustee or unsecured creditor, section 1325(b)(1) would be rendered superfluous, as that section only refers to the applicable commitment period upon such objection. This is an untenable result of the “temporal approach” applied by the lower court.

  NACBA’s position is supported by Hamilton v. Lanning,506 U.S. __, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010), in which the Court found that once income and expenses are adjusted by “known or virtually certain changes,” the resulting amount should be multiplied by 36 or 60 months to arrive at the “projected disposable income.” This is in harmony with pre-BAPCPA treatment of the issue which Lanning endorsed.

  The brief argues that the contrary decisions out of the Sixth and Eleventh Circuits, Baud v. Carroll, 634 F.3d 327 (6th Cir. 2011); Whaley v. Tennyson, 611 F.3d 873 (11th Cir. 2010), were wrongly decided.

  Finally, the brief argues that the bankruptcy court erred in finding that it could jettison the results of the means test in favor of calculating an amount the debtor is able to pay based on schedules I and J, thereby rendering the means test—one of the most significant BAPCPA amendments—superfluous.

  Thanks to Norma Hammes for authoring NACBA’s brief.

  Eighth Circuit Rejects State Common-Law Exemptions

  Posted by NCBRC - July 22, 2013

  The Eighth Circuit found that the Missouri opt-out statute does not permit exemptions that are based upon state common law. In re Abdul-Rahim, 12-3448 (8th Cir. July 12, 2013). In that case, the debtors sought to exempt their unliquidated personal injury claim from their bankruptcy estate. The bankruptcy court rejected the exemption because it originated under state common law rather than by statutory enactment. Missouri’s opt-out statute, section 513.427, provides that Missouri debtors “shall be permitted to exempt from property of the [bankruptcy] estate any property that is exempt from attachment and execution under the law of the state of Missouri.” In finding that the state exemptions referred to in that section did not include common law exemptions, the court relied on, and in fact felt compelled to follow, In re Benn, 491 F.3d 811 (8th Cir. 2007), which held that, under Missouri law, the tax refunds that the debtor sought to exempt were property of the bankruptcy estate and were not exemptible.

  NACBA filed an amicus brief in this case arguing that the Benn decision merely determined that anticipated tax refunds were property of the bankruptcy estate and that Missouri’s opt-out statute did not create exemptions that did not otherwise exist under other state law. In finding that the opt-out statute did not create exemptions, the court in Benn stated: “The statute simply provides that where another Missouri statutespecifies that certain property is exempt from attachment and execution, then a debtor may exempt that property from the bankruptcy estate.” 491 F.3d at 814. Despite the fact that Benn did not deal with a common law exemption, the court inAbdul-Rahim found that Benn’s reference to a Missouri statute, defined a rule that exemptions under Missouri common law could not be used in bankruptcy.

  This decision flies in the face of well-established precedent that state law as determined by state legislature and courts, defines property rights in bankruptcy. As pointed out by NACBA in this case, Missouri courts have consistently held that unliquidated  personal injury claims are exempt property for purposes of bankruptcy. “Allowing debtors to exempt personal injury claims is consistent with policies underlying both bankruptcy and tort law and the fact that the exemption at issue was based in common law is irrelevant. Nothing in section 522(b)(3) or the history of the 1978 Bankruptcy Code suggests that only “statutory” exemption are permitted in states that have opted-out of the federal exemption scheme. The Eighth Circuit’s dictum in which suggests all state exemptions must be statutory, is not consistent with the law of Missouri or the plain language of section 522(b)(3).”

  Nonetheless, the Abdul-Rahim court felt that the language of Benn was controlling and that “unless In re Benn is overruled en banc or by the Supreme Court, it remains binding precedent, and is directly applicable to the issues in this case.”

• Two New Cases Support Majority in Ch.20 Lien Stripping

  Posted by NCBRC - July 17th, 2013
  While the issue of lien stripping in no discharge chapter 13′s continues to work its way through the appellate courts, two bankruptcy courts have recently weighed in and sided with the majority, which permits lien stripping even when a discharge is unavailable.  The courts in In re Wapshare, 492 B.R. 211 (S.D. N.Y. 2013) and In re Dolinak, 2013 WL 3294277 (Bankr. D.N.H. June 28, 2013), both concluded that the lack of a discharge did no preclude lien avoidance of undersecured junior mortgages, but rather that permanent lien avoidance is conditioned upon completion of payments under the debtor’s confirmed plan.  Finding that the junior mortgagees did not have “allowed secured claims” both courts also rejected the argument that 1325(a)(5)(B) required debtors to pay in full the debt on the junior mortgage or obtain a discharge.
  
  

• Court Finds Ride-Through Not Available with respect to Real Property

  Posted by NCBRC - July 12, 2013

  In In re Jeanfreau, No. 13-50015 (Bankr. S.D. Miss. June 12, 2013), the mortgagee moved to compel compliance with section 521(a)(2), and to delay discharge of the debtor’s chapter 7 bankruptcy due to the debtor’s failure to reaffirm the mortgage on her home. Ms. Jeanfreau was current on her payments under the mortgage and had equity in the home. On her section 521(a)(2) “statement of intention,” she indicated that she intended to retain the property but did not elect to either “redeem” or “reaffirm” the debt. Instead she checked “other” and noted that she intended to maintain regular payments on the mortgage outside of bankruptcy without reaffirming.

  In finding that ride-through was not available to the debtor, the court relied on precedent set by the 1996 decision in Johnson v. Sun Finance Co. (In re Johnson),89 F.3d 249 (5th Cir.), which, in turn, agreed with Taylor v. AGE Federal Credit Union (In re Taylor), 3 F.3d 1512 (11th Cir. 1993). Both Johnson and Taylor involved debts secured by personal property. The Johnson court recognized that circuits were split on the issue of the availability of ride-through as a fourth option outside of those provided by section 521 (surrender, redeem or reaffirm). Accord In re Covel, 474 B.R. 702 (Bankr. W.D. Ark. 2012) (listing pre-BAPCPA circuit cases representing both sides of the issue). Many of those pre-BAPCPA decisions rested on interpretation of the phrase “if applicable” in section 521. See, e.g., McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668 (9th Cir. 1998); Home Owners Funding Corp. of Am. v. Belanger (In Re Belanger), 962 F.2d 345, 347-49 (4th Cir.1992).  TheJohnson court, however, concluded that the mandatory language, “the debtor shall file with the clerk a statement of his intention,” in the pre-BAPCPA section 521 precluded the fourth, unwritten, option.

  The Jeanfreau court then turned to the impact of the BAPCPA amendments on theJohnson decision. Walking through some of the relevant new provisions, the court noted that section 521(a)(6) specifically provides that a debtor may not retain possession of personal property unless the debtor has selected one of the three options in section 521(a)(2)(A), and the hanging paragraph to section 521(a)(2)(B) provides that nothing in (A) or (B) alters the debtor’s rights except as provided for in section 362(h) which, in turn, provides that the automatic stay is terminated with respect to personal property in the event that the debtor fails to file a timely statement of intention as required by section 521. Based on these changes to the Code, courts have generally found that ride through is no longer available where a debt is secured by personal property. See, e.g., DaimlerChrysler Fin. Serv. Amer. v. Jones (In re Jones), 591 F.3d 308 (4th Cir. 2010); Dumont v. Ford Motor Credit Co. (In re Dumont), 581 F.3d 1107 (9th Cir. 2009); In re Harris, 421 B.R. 597 (Bankr. S.D. Ga. 2010) (BAPCPA clearly eliminated ride through for personal property); In re Linderman, 435 B.R. 715, 716-17 (Bankr. M.D. Fla. 2009).

  Despite the fact that the property at issue in Jeanfreau was real property rather than personal property, the court found that because the BAPCPA amendments did not change the mandatory language relied on in Johnson, they did not abrogate that court’s holding and did not eliminate the precedential mandate established by that case. See also In re Harris, 421 B.R. 597 (Bankr. S.D. Ga. 2010) (finding that BAPCPA clearly eliminated ride through for personal property and did not change the reasoning in Taylor which demands that ride through is also unavailable where real property is involved).

  Though, as found by the Jeanfreau court, the language of Johnson and Taylor may be broad enough to encompass real property, the fact that Congress specifically circumscribed only personal property, arguably supports a finding that ride-through is available where real property is concerned. In re Covel, 474 B.R. 702, 708 (Bankr. W.D. Ark. 2012) (“By not making corresponding changes concerning real property, Congress appears to tacitly recognize a ride through option for real property.”). See also In re Lopez, 440 B.R. 447, 448 (Bankr. E.D. Va. 2010) (denying debtor’s motion to approve reaffirmation agreement because it was not in debtor’s best interest and “Congress changed, but did not entirely eliminate, the ride-through provisions that existed before the 2005 amendments in the Bankruptcy Abuse Prevention and Consumer Protection Act. In re Donald, 343 B.R. 524 (Bankr.E.D.N.C.2006). It did not eliminate the ride-through for debts secured by real property. In re Waller, 394 B.R. 111 (Bankr.D.S.C.2008); In re Wilson, 372 B.R. 816 (Bankr.D.S.C.2007); In re Bennet, 2006 WL 1540842 (Bankr.M.D.N.C.2006).”); In re Caraballo, 386 B.R. 398, 402 (Bankr. D. Conn.2008).

  Ms. Jeanfreau filed a notice of appeal in this case on June 20. Where the bankruptcy court felt bound by precedent, it will be interesting to follow this case on appeal.

• Dewsnup Rears its Ugly Head in Seventh Circuit Chapter 13 Case

  Posted by NCBRC - July 9, 2013

  In Ryan v. U.S.A., No. 12-3398 (7th Cir. July 8, 2013), the IRS had a tax lien on debtor’s property as security for delinquent taxes of more than $136,000.00. At the time debtor filed his chapter 13 petition the value of his estate property totaled approximately $1,600.00. He moved the court to value the IRS’s lien under section 506(a), to treat the secured portion of the lien in the bankruptcy, and to strip the unsecured portion under section 506(d). The bankruptcy court agreed with the IRS that section 506(d) does not authorize a court to strip a wholly unsecured lien.

  The Seventh Circuit granted the debtor’s petition for direct appeal and affirmed.

  Section 506(a) provides that “’[a]n allowed claim . . is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property.” Section 506(d) provides that “[t]o the extent that lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.” Like many debtors, Ryan interpreted these provisions as creating a two-step process under which a lien is valued under section 506(a) and the unsecured portion stripped under section 506(d). Also, like many debtors, Ryan found himself pressed up against the brick wall put up by the Supreme Court in the case of Dewsnup v. Timms, 502 U.S. 410 (1992), where, in a cringe-worthy opinion, the Court found “that §§ 506(a) and 506(d) did not have to be read together, and that the term ‘allowed secured claim’ in § 506(d) was not defined by reference to § 506(a).” Ryan, at * 3.

  In Dewsnup the Court interpreted section 506(d)’s “allowed secured claim” as a claim which is first allowed, and second, secured within the meaning of state law rather than by the valuation performed under section 506(a). Dewsnup went on to find that section 506(d) does not permit a lien to be stripped down to its secured value in chapter 7. Courts have extended this finding to preclude strip-offs of wholly unsecured liens in chapter 7.  See Wachovia Mortgage v. Smoot, 478 B.R. 555 (E.D. N.Y. 2012) (joining majority of courts in finding that Dewsnup precludes strip off of wholly unsecured lien).

  Ryan attempted to distinguish Dewsnup as involving a chapter 7 bankruptcy while his case is in chapter 13. The court found, however, that section 103(a), which provides that chapter 5 applies equally to chapters 7 and 13 precluded that distinction and that section 506(d) cannot be interpreted differently in chapter 13 than it is in chapter 7 merely in an effort to maximize the underlying benefits of chapter 13 bankruptcy where there is no statutory language to support such an interpretation.

  This decision mirrors the recent conclusion by the Tenth Circuit in In re Woolsey, 696 F.3d 1266, 1273 (2012), in which that court rejected the debtor’s attempt to strip a lien under the authority of section 506(d) finding that the mechanism for stripping must be found elsewhere in the Code, such as in section 1322(b). See also Brinson v. U.S.A., 485 B.R. 890 (Bankr. N.D. Ill. 2013) (chapter 13 debtor cannot strip unsecured lien based solely upon section 506(d)); Cusato v. Springleaf Financial, 485 B.R. 824 (Bankr. E.D. Pa. 2013) (506(d) does not provide necessary mechanism for strip-off of wholly unsecured lien in chapter 13). But see National Capital Management v. Gammage-Lewis, No. 12-2286 (4th Cir. June 6, 2013) (finding that Rule 7001(2) provides the mechanism for stripping off a disallowed claim under section 506(d)).
  The Ryan court concluded that “We agree with Woolsey, and join it in holding that the Court’s interpretation of § 506(d) in Dewsnup applies in Chapter 13 cases as well.”

  Court Erroneously Applies Lanning to Find Presumption of Abuse in Chapter 7

  Posted by NCBRC - July 4, 2013

  The district court for the Eastern District of North Carolina was asked to revisit its previous decision that a chapter 7 debtor may take secured payment deductions on property he intends to surrender. Krawczyk v. Lynch (In re Krawczyk), No. 12-643 (E.D. N.C. June 17, 2013). The bankruptcy court had concluded that intervening Supreme Court and Fourth Circuit decisions rendered that finding incorrect. In re Krawczyk, No. 11-0956-8-JRL, 2012 WL 3069437 * 5 (Bankr. E.D. N.C. July 27, 2012) (relying on Hamilton v. Lanning, 130 S. Ct. 2464 (2010); Ransom v. FIA Card Services, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011); In re Quigley, 673 F.3d 269 (4th Cir. 2012)). The district court agreed that the debtor could not take the deductions and that, therefore, the petition was presumptively abusive under section 707(b)(2)(A).

  The court began with a look at section 707(b)(2)(A) which provides that a chapter 7 petition is presumptively abusive when calculation of the means test reveals current monthly income in excess of a statutory minimum. Under the means test, calculation of current monthly income permits a deduction for ‘[t]he debtor’s average monthly payments on account of secured debts,’ which ‘shall be calculated as . . . the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the filing of the petition. . . . divided by 60.’ 11 U.S.C. § 707(b)(2)(A)(iii).” In this case, when the debtor calculated his income with the deduction for his secured debts his petition did not trigger the presumptive abuse provision.

  Nonetheless, the court agreed with the trustee’s position, finding that under Lanning,Ransom and Quigley, the debtor’s intent to surrender collateral altered the means test calculation of current monthly income. It rejected the debtor’s argument distinguishing those cases on the basis that they concern chapter 13, finding that, because the means test is the basis for the calculation whether the bankruptcy is chapter 7 or chapter 13, the reasoning is identical in either situation.

  In so holding,the court performed various contortions beginning with a strained reading of the section quoted above that allows certain deductions in the monthly income calculation. The court first examined the word “scheduled” finding that it is amenable to two plausible interpretations: 1) specified to be paid under the terms of the security agreement, or 2) scheduled as expenses in the debtor’s bankruptcy schedules. If the proper meaning is the latter, the court reasoned, a debtor who has not made payments on the loan and does not intend to in the future, will not schedule the expense on the bankruptcy Schedule J and may not take the deduction. The court next found ambiguity in the phrase “on account of secured debts.” The court found this phrase susceptible to meaning: 1) on account of debts created with a security interest but subject to change – the “snapshot” view, or 2) on account of debts which will continue to be secured during the bankruptcy – the “forward-looking” view.

  Having found ambiguity, the court went on to resolve the issue by reference to In re Quigley, 673 F.3d 269 (4th Cir. 2012), where the circuit court applied a forward-looking approach to decide that a chapter 13 debtor could not calculate projected disposable income with a deduction for secured payments on property he intended to surrender. The Quigley opinion was supported by Hamilton v. Lanning, 130 S. Ct. 2464 (2010) (projected disposable income calculation may take into account changes that are virtually certain to occur), and Ransom v. FIA Card Services, N.A., 131 S.Ct. 716 (2011) (debtor may not take expense deduction for payments on surrendered vehicle).

  It was in the interpretation of the lessons of Lanning, Ransom and Quigley, all three of which dealt with chapter 13 plans, that the district court went off course. The means test is an objective first step in the bankruptcy process based on the state of debtor’s financial affairs as of the petition date. See In re Rivers, 466 B.R. 558 (Bankr. M.D. Fla. 2012) (citing Ransom). “[A] plain, ordinary reading of the subsection supports the bankruptcy court’s finding that it applies to payments that the debtor is under contract to make.” Lynch v. Haenke (In re Lynch), 395 B.R. 346, 349 (E.D. N.C. 2008). A finding based on the means test that the petition is not presumptively abusive under section 707(b)(2) does not preclude a finding of bad faith, however. Section 707(b)(3) permits a court to inquire into the good faith of the petitioner based on the totality of the circumstances, “including debtor’s income and expenses after the filing of the petition.” Id. at 560. Therefore, it is neither necessary nor appropriate to manipulate the outcome of the means test to account for the intended surrender of collateral.

  This reasoning finds support in the very cases the court in Krawczyk relied on for the opposite proposition. Unlike the court here, the Lanning Court did not recalculate “current monthly income” as determined by the means test. Rather, the Lanning Court decided that “projected disposable income” would not be based on that calculation alone when changes to current monthly income were known or virtually certain to occur. The Lanning Court did not have to perform the same sleight of hand with respect to the language of section 707(b)(2)(A)(iii) because that Court did not require recalculation of current monthly income for its ultimate decision. Specifically, Lanninganswered the question of whether the “projected disposable income” calculation—a calculation that does not come into play in chapter 7—always had to be based on the current monthly income in the means test, or whether it could take into account changes to the means test calculation that were “virtually certain” to occur. Notably, the Lanning Court did not find that anticipated changes to income altered the means test calculation of current monthly income.

  The issue is also not answered by Ransom where the Court examined a different provision of the means test relating to deduction of vehicle ownership costs for a car that was fully paid off. Calculation of that deduction is explicitly dependent upon IRS Standards which define the deduction in such a way that it covers only expenses related to a car loan or lease. Since the debtor had neither, the ownership deduction was deemed inapplicable within the meaning of the means test. The Court noted that the means test provided for a separate deduction based on operating expenses which was not dependent on the existence of debt.

  The means test is a “snapshot” of the debtor’s financial situation at the time of filing. Therefore, a debtor’s intent to surrender does not come into play at that juncture. This finding is harmonious with the recent Supreme Court decisions in Lanning andRansom, and obviates the need for strained reading of section 707, without precluding a later finding of abuse if the totality of circumstances warrants such a finding.

  
  

April 2013 Case Law updates from NACBA related to Bankruptcy.

Amicus Brief Filed in Eighth Circuit Exemption Case

On April 3, 2013, the Eighth Circuit Court of Appeals granted NACBA’s motion for leave to file an amicus brief in In re Abdul-Rahim, No. 12-3448. The brief addresses the issue of whether the debtors may exempt an unliquidated personal injury claim in their bankruptcy case. NACBA argued that the question is one of state law and that under Missouri law courts have repeatedly held that such a claim is exempt in bankruptcy. Allowing debtors to exempt personal injury claims is consistent with policies underlying both bankruptcy and tort law and the fact that the exemption at issue was based in common law is irrelevant. Nothing in section 522(b)(3) or the history of the 1978 Bankruptcy Code suggests that only “statutory” exemption are permitted in states that have opted-out of the federal exemption scheme. The Eighth Circuit’s dictum in In re Benn, 491 F.3d 811 (8th Cir. 2007), which suggests all state exemptions must be statutory, is not consistent with the law of Missouri or the plain language of section 522(b)(3).

The case was argued on April 10, and according to one NACBA member in attendance, the argument went well. Judge Beam sprung a very recent Supreme Court case on the parties, Kirtsaeng v. John Wiley & Sons, No.11-697 (S.Ct. March 19, 2013), rev’g and rem’g John Wiley & Sons v. Kirtsaeng, 654 F.3d 210 (2d Cir. 2011), from which he quoted the following language: “A relevant canon of statutory interpretation favors a nongeographical reading. “[W]hen a statute covers an issue previously governed by the common law,” we must presume that “Congress intended to retain the substance of the common law.” Samantar v. Yousuf, 560 U. S. ___, ___, n. 13 (2010) (slip op., at 14, n. 13). See also Isbrandtsen Co. v. Johnson, 343 U. S. 779, 783 (1952) (“Statutes which invade the common law . . . are to be read with a presumption favoring the retention of long established and familiar principles, except when a statutory purpose to the contrary is evident”).” Kirtsaeng at *17.

Post-Confirmation Funds Returned to Debtor after Conversion to Chapter 7

In a case that illustrates the power of NCBRC briefs to create good law around the country by getting involved in select cases on appeal, the bankruptcy court for the Western District of Texas ordered turnover of funds that t he trustee had distributed to creditors post-conversion. Relying in large part on the Third Circuit case of In re Michael, 699 F.3d 305 (2012), in which NACBA participated as amicus, the district court affirmed. Veigelahn v. Harris (In re Harris), No. 12-540 (W.D. Tex. March 22, 2013).

Key to the decision was section 348(f) which provides that when a case is converted in good faith from chapter 13 to chapter 7 the property of the estate is determined as of the original petition date.  Because the funds at issue had been garnished from debtor’s wages post-confirmation, they were not part of the debtor’s estate at the original filing of the chapter 13 petition and, therefore, under section 348 would not be part of the chapter 7 estate upon conversion.  

Quoting Michael, the court found that the duties of the trustee delineated in section 1326 did not vest any rights in the creditors:

When the debtor transfers funds to the Chapter 13 trustee . . . under a confirmed plan . . . the funds become part of the estate, and the debtor retains a vested interest in them. Though creditors have a right to those payments based on the confirmed plan, the debtor does not lose his vested interest until the trustee affirmatively transfers the funds to creditors. Also, § 1326(a)(2) and (c) only address the obligation of  the trustee to distribute payments in accordance with a confirmed plan; they do not vest creditors with any property rights.

Michael, 699 F.3d at 313.

Argued:

In re Ranta, No. 12-2017 (4th Cir.)

Issue: Whether social security income may be considered in PDI.

Argument date: March 20, 2013

NCBRC filed an amicus brief on behalf of NACBA.

In re Abdul-Rahim, No. (1st Cir.)

Issue: Whether an unliquidated personal injury claim may be exempted in bankruptcy.

Argument date: April 10, 2013

NCBRC filed an amicus brief on behalf of NACBA.

Petition for rehearing en banc

In re Welsh, No. 12-60009 (9th Cir.)

Issue: Whether social security income may be considered in PDI and whether court may look at necessity of items securing debts for which payments have been deducted from PDI.

Result: The Ninth Circuit affirmed the decision of the BAP on March 25, 2013, in favor of the debtor. The trustee petitioned for rehearing on April 8.

Keeping your home in bankruptcy.

The first question many people is, is "What will happen to my house or car if I file for bankruptcy?"  The answer is, "you probably can keep both".

First, if you are current in you paying your mortgage payments, the bank cannot (repeat, cannot) take your home (in New Hampshire, where I practice).  Your home is unaffected by a bankruptcy filing, as applicable to the bank when you are timely paying the mortgage payments.  Many people face mounting credit card debt and/or medical bills but wisely keep paying for their home.  Bankruptcy can rid you of credit card and medical debt while you keep the home.

If you file Chapter 7, a Chapter 7 bankruptcy trustee will look at your house to see what it is worth, to determine if there is enough equity in the house to justify selling it and paying your debts. In most cases this does not happen, because due to the real estate market a great many homes are worth less than the mortgages on them.  In New Hampshire, where I primarily practice, the state allows an exemption of $100,000 in equity in your home which covers just about everyone. For example, if your house is worth $250,000 and you owe $150,000 on the mortgage, that would leave $100,000 in equity in your house; then, you apply the $100,000 NH state exemption to the $100,000 equity in the home and there is $0 left for creditors.  So, if the house has $100,000, or less in equity, the house is safe.

If you are behind in your mortgage payments, a Chapter 13 proceeding may help you keep your home because it allows you up to five years to pay the bank back the missed payments.  Also, if your home is worth less than the first mortgage on it, and you have a second mortgage or equity line, you can probably remove that second mortgage and never pay it again in a Chapter 13 bankruptcy proceeding.

As for your car or your personal belongs, in most cases the "exemptions" under your state or federal law allow you to keep them from the reach of your creditors.  A bankruptcy lawyer can do an exemption analysis of your property to determine that.  The average person's belongings are covered by most exemptions.

So, when it comes to protecting that roof over your head and your other property, and you are drowning in debt, don't despair - find out how Chapter 7 or Chapter 13 can help you.

Worried about what it will cost to talk to a bankruptcy lawyer? Don't - most good bankruptcy lawyers provide an initial free consultation, as does my firm.

Can I keep my car if I file for bankruptcy?

What you can keep in a bankruptcy case depends on what Chapter you file and where you live.

In most instances, bankruptcy allows you to keep one vehicle, and possible a second.

CHAPTER 7
Normally, in a Chapter 7 case, you can keep whatever you can exempt under the allowed "exemptions". 
An "exemption"  is something that you may keep, regardless as to how much money you owe to creditors other than the car loan.
 
There is a State Exemption scheme in many states and there is a Federal Bankruptcy Code exemption scheme. 

If you live in New Hampshire, where I practice, you can choose either (1) the State Exemptions or the (2) Federal Exemptions. 

Under the New Hampshire State Exemptions, as well as under the Federal Bankruptcy Code exemptions, you can normally exempt one car (up to a certain amount in value) - and there is a "wild card" exemption to cover possibly a second vehicle.  Please click onto my articles on "Exemptions - NH State Election" and "Exemptions - Federal Election" for more information.


CHAPTER 13.
In Chapter 13, you would still choose either the State or Federal Exemption scheme. However, as long as you make the Chapter 13 payments under your Chapter 13 re-payment plan, you can normally keep ALL of your assets. 

The reason you list the exemptions in Chapter 13 is to determine how much equity you have in your assets after application of exemptions.  Why? Because, in Chapter 13, under your repayment plan you should pay your unsecured creditors (normally credit card debt or medical bills) the same percentage they would receive if you liquidated all of your assets after application of the exemptions - essentially, pennies on the dollar spread over the life of your Chapter 13 re-payment plan.

Can I keep my house if I file for bankruptcy?

What you can keep in a bankruptcy case depends on what Chapter you file and where you live.

In many, many instances, bankruptcy allows you to keep your house and is the only tool to allow you to keep your house.

CHAPTER 7
Normally, in a Chapter 7 case, you can keep whatever you can exempt under the allowed "exemptions". 
An "exemption"  is something that you may keep, regardless as to how much money you owe to creditors. 
There is a State Exemption scheme in many states and there is a Federal Bankruptcy Code exemption scheme applicable to all states. 

If you live in New Hampshire, where I practice, you can choose either (1) the State Exemptions or the (2) Federal Exemptions.  If you go to my prior articles, click on "exemptions", and it will tell you what you can exempt under the Federal or State Exemption schemes.

Under the New Hampshire State Exemptions, you have a homestead exemption of $100,000.  Under the Federal Bankruptcy Code exemptions, you can exempt $21,625 in value of your home.

So, if you own a home worth $250,000 and owe $150,000 on the mortgage, you have an equity cushion of $100,000.  Under the New Hampshire State Exemptions, you could protect all of the equity in your home (remember, there is a $100,000 homestead exemption) and go through Chapter 7 without the bankruptcy trustee touching your home.  You can keep it.  The only issue is then between you and the mortgage holder on your home.  If you are current in your mortgage payments, then regardless as to whether you file Chapter 7, the mortgage holder cannot foreclose on your home as long as you are current in all of your obligations under the mortgage. Many people who are overwhelmed by credit card debt or medical bills, stay current on their home mortgage payments, and file Chapter 7 to get rid of the credit card debt and medical bills - and still keep their home. 

If you are not current on your mortgage payments, then the lender may foreclose - but you still get to keep the surplus proceeds over and above what you owe on the mortgage on any foreclosure sale of your home.

CHAPTER 13.
In Chapter 13, you would still choose either the State or Federal Exemption scheme. However, as long as you make the Chapter 13 payments under your Chapter 13 re-payment plan, you can normally keep ALL of your assets. 

The reason you list the exemptions in Chapter 13 is to figure out how much equity you have in your assets after application of exemptions.  Why? Because, in Chapter 13, under your repayment plan you should pay your unsecured creditors (nomrally credit card debt or medical bills) the same percentage they would receive if you liquidated all of your assets after application of the exemptions - essentially, pennies on the dollar spread over the life of your Chapter 13 re-payment plan.

Many people file Chapter 13 because they are behind in their mortgage payments and just cannot catch up, but they want to keep their home.   Chapter 13 gives the home owner the opportunity to keep their house. 

Let's say Mrs. X pays $1000 monthly to her bank for her mortgage but she was out of work for a few months and fell behind 4 payments - she now owes the bank $4000 in past-due payments, called "mortgage arrearages".  She tries to get a loan modification, but the bank just will not work with her.  Mrs. X tells the bank she can still make her $1000 monthly mortgage  payment if they would just let her spread out the $4000 she owes in mortgage arrearages over time.  Mrs. X says to the bank, if you just let me spread the $4000 I owe in back payments over 36-months, I can catch up.  The bank says "no". They tell her they are going to foreclose on her house.

[When a bank says the "f" word ("foreclosure") - take action.  Please click on the articles under "foreclosure" on my blog to learn more about foreclosure - because in New Hampshire, the bank normally does not have to take you to court to foreclose on your home and you can be on the street in a matter of months.]

Mrs. X can force the bank to take her deal by simply filing Chapter 13 and sucessfully completing  the same 36-month re-payment plan!

EXEMPTIONS - Bankruptcy Code

When someone files for bankruptcy protection, they may “exempt” certain assets from the reach of their creditors.  That means that regardless of the bankruptcy filing, he/she may keep the exempt assets up to the value of the allowed exemption.

In New Hampshire, a person who files for bankruptcy may choose either the New Hampshire state exemptions or the Bankruptcy Code Exemptions under 11 U.S.C. § 522 - but he/she cannot choose both. (Please read the separate posting on "EXEMPTIONS - State" for the NH State exemptions).

STATE EXEMPTIONS:  The state exemptions are those assets and wages which the state would normally not allow creditors to take to satisfy a debt (with limited exceptions such as taxes and child support).  There are many other non-bankruptcy federal exemptions that can be taken as well.

BANKRUPTCY CODE SECTION 522 EXEMPTIONS:  If your situation fits better within the Bankruptcy Code exemptions, then the person who files for bankruptcy may elect the Bankruptcy Code Exemptions instead of the state exemptions. 

Below are the Bankruptcy Code Exemptions.  Be aware that there are some very limited exceptions to exempting your assets and wages from the reach of creditors.  For example, if the IRS has asserted a valid lien for non-dischargeable tax debt, the IRS lien may reach the exempt assets.

               FEDERAL BANKRUPTCY CODE EXEMPTIONS.

If a person elects to use the exemptions under the Federal Bankruptcy Code, rather than electing under the New Hampshire State exemption scheme (which includes the NH State exemptions and other Federal Law exemptions not otherwise covered in the Bankruptcy code for the Federal election) then they are set forth at 11 U.S.C. § 522.  That entire section is reprinted below.

§ 522.  Exemptions
(a) In this section--
   (1) "dependent" includes spouse, whether or not actually dependent; and
   (2) "value" means fair market value as of the date of the filing of the petition or, with respect to property that becomes property of the estate after such date, as of the date such property becomes property of the estate.

(b) (1) Notwithstanding section 541 of this title [11 USCS § 541], an individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection. In joint cases filed under section 302 of this title [11 USCS § 302] and individual cases filed under section 301 or 303 of this title [11 USCS § 301 or 303] by or against debtors who are husband and wife, and whose estates are ordered to be jointly administered under Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, one debtor may not elect to exempt property listed in paragraph (2) and the other debtor elect to exempt property listed in paragraph (3) of this subsection. If the parties cannot agree on the alternative to be elected, they shall be deemed to elect paragraph (2), where such election is permitted under the law of the jurisdiction where the case is filed.
   (2) [Federal exemptions under the Code] Property listed in this paragraph is property that is specified under subsection (d), unless the State law that is applicable to the debtor under paragraph (3)(A) specifically does not so authorize.
   (3) [NH State Exemptions referenced at this section 3] Property listed in this paragraph is--
      (A) subject to subsections (o) and (p), any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition to the place in which the debtor's domicile has been located for the 730 days immediately preceding the date of the filing of the petition or if the debtor's domicile has not been located in a single State for such 730-day period, the place in which the debtor's domicile was located for 180 days immediately preceding the 730-day period or for a longer portion of such 180-day period than in any other place;
      (B) any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law; and
      (C) retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986 [26 USCS § 401, 403, 408, 408A, 414, 457, or 501(a)].
   If the effect of the domiciliary requirement under subparagraph (A) is to render the debtor ineligible for any exemption, the debtor may elect to exempt property that is specified under subsection (d).
   (4) For purposes of paragraph (3)(C) and subsection (d)(12), the following shall apply:
      (A) If the retirement funds are in a retirement fund that has received a favorable determination under section 7805 of the Internal Revenue Code of 1986 [26 USCS § 7805], and that determination is in effect as of the date of the filing of the petition in a case under this title, those funds shall be presumed to be exempt from the estate.
      (B) If the retirement funds are in a retirement fund that has not received a favorable determination under such section 7805 [26 USCS § 7805], those funds are exempt from the estate if the debtor demonstrates that--
         (i) no prior determination to the contrary has been made by a court or the Internal Revenue Service; and
         (ii) (I) the retirement fund is in substantial compliance with the applicable requirements of the Internal Revenue Code of 1986 [26 USCS §§ 1 et seq.]; or
            (II) the retirement fund fails to be in substantial compliance with the applicable requirements of the Internal Revenue Code of 1986 [26 USCS §§ 1 et seq.] and the debtor is not materially responsible for that failure.
      (C) A direct transfer of retirement funds from 1 fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986 [26 USCS § 401, 403, 408, 408A, 414, 457, or 501(a)], under section 401(a)(31) of the Internal Revenue Code of 1986 [26 USCS § 401(a)(31)], or otherwise, shall not cease to qualify for exemption under paragraph (3)(C) or subsection (d)(12) by reason of such direct transfer.
      (D) (i) Any distribution that qualifies as an eligible rollover distribution within the meaning of section 402(c) of the Internal Revenue Code of 1986 [26 USCS § 402(c)] or that is described in clause (ii) shall not cease to qualify for exemption under paragraph (3)(C) or subsection (d)(12) by reason of such distribution.
         (ii) A distribution described in this clause is an amount that--
            (I) has been distributed from a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986 [26 USCS § 401, 403, 408, 408A, 414, 457, or 501(a)]; and
            (II) to the extent allowed by law, is deposited in such a fund or account not later than 60 days after the distribution of such amount.

(c) Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title [11 USCS § 502] as if such debt had arisen, before the commencement of the case, except--
   (1) a debt of a kind specified in paragraph (1) or (5) of section 523(a) [11 USCS § 523(a)] (in which case, notwithstanding any provision of applicable nonbankruptcy law to the contrary, such property shall be liable for a debt of a kind specified in such paragraph);
   (2) a debt secured by a lien that is--
      (A) (i) not avoided under subsection (f) or (g) of this section or under section 544, 545, 547, 548, 549, or 724(a) of this title [11 USCS § 544, 545, 547, 548, 549, or 724(a)]; and
         (ii) not void under section 506(d) of this title [11 USCS § 506(d)]; or
      (B) a tax lien, notice of which is properly filed;
   (3) a debt of a kind specified in section 523(a)(4) or 523(a)(6) of this title [11 USCS § 523(a)(4) or 523(a)(6)] owed by an institution-affiliated party of an insured depository institution to a Federal depository institutions regulatory agency acting in its capacity as conservator, receiver, or liquidating agent for such institution; or
   (4) a debt in connection with fraud in the obtaining or providing of any scholarship, grant, loan, tuition, discount, award, or other financial assistance for purposes of financing an education at an institution of higher education (as that term is defined in section 101 of the Higher Education Act of 1965 (20 U.S.C. 1001)).

(d) [Federal Code Exemptions] The following property may be exempted under subsection (b)(2) of this section:
   (1) The debtor's aggregate interest, not to exceed $ 21,625 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.
   (2) The debtor's interest, not to exceed $ 3,450 in value, in one motor vehicle.
   (3) The debtor's interest, not to exceed $ 550 in value in any particular item or $ 11,525 in aggregate value, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.
   (4) The debtor's aggregate interest, not to exceed $ 1,450 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.
   (5) The debtor's aggregate interest in any property, not to exceed in value $ 1,150 plus up to $ 10,825 of any unused amount of the exemption provided under paragraph (1) of this subsection.
   (6) The debtor's aggregate interest, not to exceed $ 2,175 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor.
   (7) Any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract.
   (8) The debtor's aggregate interest, not to exceed in value $ 11,525 less any amount of property of the estate transferred in the manner specified in section 542(d) of this title [11 USCS § 542(d)], in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent.
   (9) Professionally prescribed health aids for the debtor or a dependent of the debtor.
   (10) The debtor's right to receive--
      (A) a social security benefit, unemployment compensation, or a local public assistance benefit;
      (B) a veterans' benefit;
      (C) a disability, illness, or unemployment benefit;
      (D) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
      (E) a payment under a stock bonus, pension, profit-sharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless--
         (i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor's rights under such plan or contract arose;
         (ii) such payment is on account of age or length of service; and
         (iii) such plan or contract does not qualify under section 401(a), 403(a), 403(b), or 408 of the Internal Revenue Code of 1986 [26 USCS § 401(a), 403(a), 403(b), or 408].
   (11) The debtor's right to receive, or property that is traceable to--
      (A) an award under a crime victim's reparation law;
      (B) a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
      (C) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual's death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
      (D) a payment, not to exceed $ 21,625, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or
      (E) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.
   (12) Retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986 [26 USCS § 401, 403, 408, 408A, 414, 457, or 501(a)].

(e) A waiver of an exemption executed in favor of a creditor that holds an unsecured claim against the debtor is unenforceable in a case under this title with respect to such claim against property that the debtor may exempt under subsection (b) of this section. A waiver by the debtor of a power under subsection (f) or (h) of this section to avoid a transfer, under subsection (g) or (i) of this section to exempt property, or under subsection (i) of this section to recover property or to preserve a transfer, is unenforceable in a case under this title.

(f) (1) Notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is--
      (A) a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5) [11 USCS § 523(a)(5)]; or
      (B) a nonpossessory, nonpurchase-money security interest in any--
         (i) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;
         (ii) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or
         (iii) professionally prescribed health aids for the debtor or a dependent of the debtor.
   (2)
      (A) For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of--
         (i) the lien;
         (ii) all other liens on the property; and
         (iii) the amount of the exemption that the debtor could claim if there were no liens on the property;
      exceeds the value that the debtor's interest in the property would have in the absence of any liens.
      (B) In the case of a property subject to more than 1 lien, a lien that has been avoided shall not be considered in making the calculation under subparagraph (A) with respect to other liens.
      (C) This paragraph shall not apply with respect to a judgment arising out of a mortgage foreclosure.
   (3) In a case in which State law that is applicable to the debtor--
      (A) permits a person to voluntarily waive a right to claim exemptions under subsection (d) or prohibits a debtor from claiming exemptions under subsection (d); and
      (B) either permits the debtor to claim exemptions under State law without limitation in amount, except to the extent that the debtor has permitted the fixing of a consensual lien on any property or prohibits avoidance of a consensual lien on property otherwise eligible to be claimed as exempt property;
   the debtor may not avoid the fixing of a lien on an interest of the debtor or a dependent of the debtor in property if the lien is a nonpossessory, nonpurchase-money security interest in implements, professional books, or tools of the trade of the debtor or a dependent of the debtor or farm animals or crops of the debtor or a dependent of the debtor to the extent the value of such implements, professional books, tools of the trade, animals, and crops exceeds $ 5,850.
   (4) (A) Subject to subparagraph (B), for purposes of paragraph (1)(B), the term "household goods" means--
         (i) clothing;
         (ii) furniture;
         (iii) appliances;
         (iv) 1 radio;
         (v) 1 television;
         (vi) 1 VCR;
         (vii) linens;
         (viii) china;
         (ix) crockery;
         (x) kitchenware;
         (xi) educational materials and educational equipment primarily for the use of minor dependent children of the debtor;
         (xii) medical equipment and supplies;
         (xiii) furniture exclusively for the use of minor children, or elderly or disabled dependents of the debtor;
         (xiv) personal effects (including the toys and hobby equipment of minor dependent children and wedding rings) of the debtor and the dependents of the debtor; and
         (xv) 1 personal computer and related equipment.
      (B) The term "household goods" does not include--
         (i) works of art (unless by or of the debtor, or any relative of the debtor);
         (ii) electronic entertainment equipment with a fair market value of more than $ 600 in the aggregate (except 1 television, 1 radio, and 1 VCR);
         (iii) items acquired as antiques with a fair market value of more than $ 600 in the aggregate;
         (iv) jewelry with a fair market value of more than $ 600 in the aggregate (except wedding rings); and
         (v) a computer (except as otherwise provided for in this section), motor vehicle (including a tractor or lawn tractor), boat, or a motorized recreational device, conveyance, vehicle, watercraft, or aircraft.

(g) Notwithstanding sections 550 and 551 of this title [11 USCS §§ 550 and 551], the debtor may exempt under subsection (b) of this section property that the trustee recovers under section 510(c)(2), 542, 543, 550, 551, or 553 of this title [11 USCS § 510(c)(2), 542, 543, 550, 551, or 553], to the extent that the debtor could have exempted such property under subsection (b) of this section if such property had not been transferred, if--
   (1)
      (A) such transfer was not a voluntary transfer of such property by the debtor; and
      (B) the debtor did not conceal such property; or
   (2) The debtor could have avoided such transfer under subsection (f)(1)(B) of this section.

(h) The debtor may avoid a transfer of property of the debtor or recover a setoff to the extent that the debtor could have exempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer, if--
   (1) such transfer is avoidable by the trustee under section 544, 545, 547, 548, 549, or 724(a) of this title [11 USCS § 544, 545, 547, 548, 549, or 724(a)] or recoverable by the trustee under section 553 of this title [11 USCS § 553]; and
   (2) the trustee does not attempt to avoid such transfer.

(i) (1) If the debtor avoids a transfer or recovers a setoff under subsection (f) or (h) of this section, the debtor may recover in the manner prescribed by, and subject to the limitations of, section 550 of this title [11 USCS § 550], the same as if the trustee had avoided such transfer, and may exempt any property so recovered under subsection (b) of this section.
   (2) Notwithstanding section 551 of this title [11 USCS § 551], a transfer avoided under section 544, 545, 547, 548, 549, or 724(a) of this title [11 USCS § 544, 545, 547, 548, 549, or 724(a)], under subsection (f) or (h) of this section, or property recovered under section 553 of this title [11 USCS § 553], may be preserved for the benefit of the debtor to the extent that the debtor may exempt such property under subsection (g) of this section or paragraph (1) of this subsection.

(j) Notwithstanding subsections (g) and (i) of this section, the debtor may exempt a particular kind of property under subsections (g) and (i) of this section only to the extent that the debtor has exempted less property in value of such kind than that to which the debtor is entitled under subsection (b) of this section.

(k) Property that the debtor exempts under this section is not liable for payment of any administrative expense except--
   (1) the aliquot share of the costs and expenses of avoiding a transfer of property that the debtor exempts under subsection (g) of this section, or of recovery of such property, that is attributable to the value of the portion of such property exempted in relation to the value of the property recovered; and
   (2) any costs and expenses of avoiding a transfer under subsection (f) or (h) of this section, or of recovery of property under subsection (i)(1) of this section, that the debtor has not paid.

(l) The debtor shall file a list of property that the debtor claims as exempt under subsection (b) of this section. If the debtor does not file such a list, a dependent of the debtor may file such a list, or may claim property as exempt from property of the estate on behalf of the debtor. Unless a party in interest objects, the property claimed as exempt on such list is exempt.

(m) Subject to the limitation in subsection (b), this section shall apply separately with respect to each debtor in a joint case.

(n) For assets in individual retirement accounts described in section 408 or 408A of the Internal Revenue Code of 1986 [26 USCS § 408 or 408A], other than a simplified employee pension under section 408(k) of such Code [26 USCS § 408(k)] or a simple retirement account under section 408(p) of such Code [26 USCS § 408(p)], the aggregate value of such assets exempted under this section, without regard to amounts attributable to rollover contributions under section 402(c), 402(e)(6), 403(a)(4), 403(a)(5), and 403(b)(8) of the Internal Revenue Code of 1986 [26 USCS § 402(c), 402(e)(6), 403(a)(4), 403(a)(5), and 403(b)(8)], and earnings thereon, shall not exceed $ 1,171,650 in a case filed by a debtor who is an individual, except that such amount may be increased if the interests of justice so require.

(o) For purposes of subsection (b)(3)(A), and notwithstanding subsection (a), the value of an interest in--
   (1) real or personal property that the debtor or a dependent of the debtor uses as a residence;
   (2) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
   (3) a burial plot for the debtor or a dependent of the debtor; or
   (4) real or personal property that the debtor or a dependent of the debtor claims as a homestead;

shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or that portion that the debtor could not exempt, under subsection (b), if on such date the debtor had held the property so disposed of.

(p) (1) Except as provided in paragraph (2) of this subsection and sections 544 and 548 [11 USCS §§ 544 and 548], as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $ 146,450 in value in--
      (A) real or personal property that the debtor or a dependent of the debtor uses as a residence;
      (B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
      (C) a burial plot for the debtor or a dependent of the debtor; or
      (D) real or personal property that the debtor or dependent of the debtor claims as a homestead.
   (2) (A) The limitation under paragraph (1) shall not apply to an exemption claimed under subsection (b)(3)(A) by a family farmer for the principal residence of such farmer.
      (B) For purposes of paragraph (1), any amount of such interest does not include any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor's current principal residence, if the debtor's previous and current residences are located in the same State.

(q) (1) As a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) which exceeds in the aggregate $ 146,450 if--
      (A) the court determines, after notice and a hearing, that the debtor has been convicted of a felony (as defined in section 3156 of title 18 [18 USCS § 3156]), which under the circumstances, demonstrates that the filing of the case was an abuse of the provisions of this title; or
      (B) the debtor owes a debt arising from--
         (i) any violation of the Federal securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 [15 USCS § 78c(a)(47)]), any State securities laws, or any regulation or order issued under Federal securities laws or State securities laws;
         (ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 [15 USCS § 78l or 78o(d)] or under section 6 of the Securities Act of 1933 [15 USCS § 77f];
         (iii) any civil remedy under section 1964 of title 18; or
         (iv) any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding 5 years.
   (2) Paragraph (1) shall not apply to the extent the amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) is reasonably necessary for the support of the debtor and any dependent of the debtor.